Trombone Investments Pty Ltd v TBT (Victoria) Pty Ltd
[2015] VSC 517
•7 October 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
REVIEW AND APPEALS LIST
S CI 2015 648
| TROMBONE INVESTMENTS PTY LTD (ACN 124 192 845) | Plaintiff |
| v | |
| TBT (VICTORIA) PTY LTD (ACN 006 325 873) | Defendants |
| ANDY B PTY LTD (ACN 132 838 487) |
---
JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 September 2015 |
DATE OF JUDGMENT: | 7 October 2015 |
CASE MAY BE CITED AS: | Trombone Investments Pty Ltd v TBT (Victoria) Pty Ltd and anor |
MEDIUM NEUTRAL CITATION: | [2015] VSC 517 |
---
JUDICIAL REVIEW AND APPEALS – Application for leave to appeal from order of VCAT - Victorian Civil and Administrative Tribunal Act 1998, s 104 – Order that witness summonses to produce documents be set aside – Whether documents sought are ‘relevant to any issue which may legitimately arise in the proceeding’ – compared Supreme Court (General Civil Procedure) Rules 2005 Order 42 and 42A – HRF Nominees Pty Ltd (in liq) and ors v Man Civil Constructions Pty Ltd and ors (No 2) [2014] VSC 613; Atlas v DPP (2001) 3 VR 2011 and Skrijel v Mengler [2003] VSC 55 considered – Risk of serious injustice to Applicant – Unduly restrictive approach to issues raised in the proceeding by the Applicant – Relief against Forfeiture – Section 146(2) of the Property Law Act (1958) – Whether unconscionable conduct of a landlord under s 77 of the Retail Leases Act 2003 and under the Australian Consumer Law must be directly linked to breach of a tenant – Legione v Hateley (1983) 152 CLR 406 and Tanwar Enterprises v Cauchi (2004) 217 CLR 315 considered – Unconscionability associated with moral obloquy - Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 and Transaero Pty Ltd v Goulthorpe [2009] VCAT 2146 considered – Leave to appeal granted – Appeal allowed.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S K Wilson QC with Mr J Searle | Russell Kennedy |
| For the Defendants | Mr P R Best | Kalus Kenny Intelex |
HER HONOUR:
This is an application for leave to appeal from a decision of Senior Member E Riegler of the Victorian Civil and Administrative Tribunal (‘VCAT’) made on 11 February 2015 to quash three summonses for the production of documents in a proceeding at VCAT to which the plaintiff (‘Trombone’) and the first defendant (‘TBT’) are parties (‘VCAT proceeding’).[1] The witness summonses were issued under s 104 of the Victorian Civil and Administrative Tribunal Act 1998 (‘VCAT Act’).
[1]On 23 March 2015, Derham AsJ made orders by consent that ‘pursuant to rule 4.14(3) of the Supreme Court (Miscellaneous Civil Proceedings) Rule 2005 (‘Rules’), the application for leave to appeal be heard and determined by the Judge of the Court who, if leave is granted, is to hear and determine the appeal and on the basis that if the application for leave to appeal be granted, the appeal be allowed instanta. The application was originally fixed to be heard on 17 June 2015. The hearing was adjourned by consent to 9 September 2015. On 8 September 2015, Emerton J made orders pursuant to r 77.05 of the Rules referring to the proceeding to an Associate Judge for hearing and determination.
Trombone is (or, on another view, was) a tenant in a building in Meyers Place in the city owned by TBT (‘premises’) pursuant to the terms of a lease dated 18 April 2008 (‘lease’). Disputes have arisen between Trombone and TBT, and between TBT and the predecessor tenant of the premises, Sobel Investments Pty Ltd (the former director of which is also a director of Trombone, Mr Jerome Borazio) from time to time. The most recent dispute relates to the issue by TBT of a notice under s 146 of the Property Law Act 1958 (Vic) (‘s 146 Notice’) on 3 February 2014. The s 146 Notice alleges that Trombone had breached the terms of the lease by reason of Trombone having
given up possession or shared occupancy of the premises with Andy B without TBT’s consent.
On 19 February 2014, TBT re-entered the premises by the service of a Notice of Re-entry of the same date. However, Trombone remains in possession of the premises, and Andy B continues to operate a business from the premises. Trombone commenced the VCAT proceeding on or about 20 February 2014. The listing of the trial of the VCAT proceeding is in abeyance pending the hearing and determination of this application.
Andy B Pty Ltd (‘Andy B’) is the second defendant in this proceeding, but does not appear to have taken any active part in the VCAT proceeding. Andy B is a company controlled by, at the time of the issue of the s 146 Notice, Mr Borazio’s daughter Ms Andria Borazio, and operates a Japanese bathhouse business at the premises. Mr Borazio resides at the premises as an on‑site manager, and has done so since about December 2008.
The lease was originally entered into by Sobel Investments Pty Ltd (‘Sobel’) and TBT. The term of the lease was for five years, with options to renew for two further five year periods. On or about 4 September 2012, apparently as part of a settlement of an earlier VCAT proceeding between Sobel and TBT, TBT transferred the lease to Trombone ‘with all Options’.
It was in this context that Trombone issued the VCAT proceeding, seeking, among other things, the following relief:
(a) declaration that the s 146 Notice and the Notice of Re-Entry are ineffective, void, and/or invalid;
(b) alternatively, relief against forfeiture; and
(c) orders that TBT consent to the transfer of the lease from Trombone to Andy B and take such steps necessary to effect the transfer of the lease.
It is not necessary to traverse the entire history of the dealings between the parties or all of the allegations in the Further Amended Points of Claim dated 12 June 2014 in order to deal with the issues raised by this application. The allegations made by Trombone are traversed in some detail in an affidavit sworn by Mr Borazio on 19 December 2014 in the VCAT proceeding. It is also not necessary for me to determine the veracity of the statements made by Mr Borazio in his affidavit for current purposes: I accept that many of these matters will be vigorously contested at trial, and no doubt there is more than one side to this story. However, the affidavit does provide a useful overview of the way in which Trombone puts its case. In short, Trombone asserts that since TBT has been under the control of Mrs Hannah Fong (who is the recipient of one of the witness summonses), TBT has embarked upon a campaign of trying to eject the entities controlled by Mr Borazio from the premises, either by seizing upon technical breaches of the lease, and even going so far as to manufacture circumstances so as to create the conditions for a breach. The documents sought by Trombone in the current case are said to concern one of these occasions, as discussed further at paragraph 15 of these reasons.
Trombone contests the validity of the s 146 Notice on a range of grounds, and disputes that Trombone has given up possession or shared occupancy of the premises without the consent of TBT. Thus, it says that the s 146 Notice falls at the first hurdle. However, and these are the relevant allegations for current purposes, it says that even if Trombone is in breach of the terms of the lease, and the breach has not been rectified, TBT is not entitled to rely upon the s 146 Notice and the Notice of Re-Entry by reason of a pattern of unconscionable conduct on the part of TBT towards Trombone and the predecessor tenant, Sobel, aimed at driving Trombone and its alter ego, Mr Borazio, from the premises, motivated at least in part by the desire to re-let the premises on more favourable commercial terms. In that regard, Trombone relies upon the issue of what it contends are numerous s 146 Notices by TBT, each of which has been either withdrawn or set aside during the course of VCAT proceedings. Trombone alleges:
(a) TBT has breached an implied term of the lease in that it has not acted reasonably or in good faith towards Trombone;
(b) TBT has acted capriciously, unconscionably and unconscientiously toward Trombone;
(c) TBT has breached s 77 of the Retail Leases Act 2003 (Vic) by acting unconscionably, with particulars of such behaviour set out in paragraph 15B of the Further Amended Points of Claim;
(d) TBT has breached s 21 and/or s 22 of the Australian Consumer Law by acting unconscionably, again, with particulars of such behaviour set out in paragraph 15B of the Further Amended Points of Claim;
(e) in the relevant circumstances even if Trombone had committed a breach (which is denied) it has been rectified; and
(f) in the relevant circumstances even if Trombone had committed a breach (which is denied) then it is entitled to relief against forfeiture.
At paragraph 15B of its Further Amended Points of Claim filed on 12 June 2014, Trombone alleged that by serving and seeking to rely upon the s 146 Notice and the Notice of Re-Entry, TBT has, contrary to s 77 of the Retail Leases Act 2003 (Vic), engaged in conduct in connection with the lease that is, in all the circumstances, unconscionable. Extensive particulars of this allegations are provided, only two of which are relevant to the current application. These particulars are also relied upon to support the allegation in paragraph 15C of the Amended Points of Claim that TBT has engaged in unconscionable conduct within the meaning of the Australian Consumer Law.
Paragraph 15B of the Further Amended Points of Claim provide as follows:
15B.Further or alternatively in breach of s 77 of the Retail Leases Act 2003 by serving the Purported s 146 Notice and/or by purporting to rely upon the same to forfeit the lease (which is denied) by the Purported Notice of Re-Entry the Respondent has engaged in conduct in connection with the lease that is, in all the circumstances, unconscionable.
Particulars
(a)Prior to commencement of the lease, the premises had been vacant for approximately 12 years. The premises were uninhabitable.
(b)The former tenant, Sobel Investments Pty Ltd, spent approximately $400,000 in improvements to the premises and in otherwise making the premises habitable.
(c)The current tenant, Trombone, has spent approximately $20,000-$30,000 on additions to, and maintaining, the fit-out.
(d)The rental paid by Trombone under the lease is substantially below market rental for the premises.
(e)There has been a long standing history of acrimony towards Trombone by TBT.
(f)TBT has served a series of s 146 notices on Trombone, and the previous tenant, which it has either withdrawn or which the Tribunal has found were not effective to determine the lease.
(g)In or about April 2009 TBT served a s 146 notice in which it asserted that the lease had commenced on 22 March 2009 and that Sobel Investments Pty Ltd had breached it by not paying outgoings, GST and rent. TBT refused to withdraw the notice. On a contested hearing Senior Member Walker declared that the notice was not effective to determine the lease and Trombone refers to and relies upon the Senior Member’s findings in that regard reported in Sobel Investments Pty Ltd v TBT (Victoria) Pty Ltd [2009] VCAT 1703.
(gb)The Respondent is and was aware on the date it served the Purported s 146 Notice and the Purported Notice of Re-Entry, as is recorded in the reasons for decision of Senior Member Walker in Sobel Investments Pty Ltd v TBT (Victoria) Pty Ltd & Anor (Retail Tenancies) [2009] VCAT 1703, that:
The proposed use of the Premises by the Applicant [Sobel] was as a Japanese bathhouse and massage salon to be operated by Mr Borazio’s daughter who has some qualification in Japanese massage. The premises were also to incorporate a flat to house a manager.
(h)On or about 17 August 2010, TBT, through its then solicitors, Freehills served another s 146 in which it asserted that Sobel Investments Pty Ltd had breached the lease by performing works at the premises for which there was no building permit.
(i)In proceeding R301/2011 Member P Eggleston refused TBT access to the premises for an inspection of the flooring structure and in his reasons recorded that ‘11. On the material before the Tribunal I accept that the water tightening of the building is an ongoing issue’.
(j)On or about 5 March 2014, TBT served another purported s 146 notice in which it asserted that Trombone had not paid rent and/or outgoings. In fact, the account number provided by TBT for payment was incorrect. TBT refused to withdraw the notice despite its own error being pointed out to it. The notice had been served despite the fact that Trombone had always up to that time and since met its obligations to pay rent and outgoings.
(k)TBT commenced proceeding R112/2013 in relation to alleged water leaks from the premises. It has continued to prosecute that proceeding, and to serve a purported s 146 Notice dated 1 April 2014 (referred to in paragraph 32 below as the purported April Notice) on Trombone which required works to be undertaken within 14 days. At the time those works were the subject of orders made by Senior Member Reigler requiring them to be carried out in 45 days. Further, TBT did so, despite the fact that at the time, the special referee, Mr Tony Croucher, was only able to detect leaking after aggressive testing was conducted, and despite the fact that TBT itself has failed and/or refused to make the building watertight, contrary to its obligation under the lease.
(l)TBT has not treated the tenants in the building of which the premises form party equally. Whilst it has purported to protect the rights of the tenant immediately below (Mr Big Stuff and formerly Senioritas) and San Telmo, TBT has failed to protect Trombone from risks associated with Mr Big Stuff’s and/or San Telmo’s failure to install the appropriate mechanical ventilation in accordance with AS 1668.2 and the cooking odours emanating from Mr Big Stuff’s premises and nuisance caused thereby. The failure to install the appropriate mechanical ventilation in accordance with AS 1668.2 has jeopardised the insurance policies required under the lease, the insurance premiums of which have been paid and/or contributed to by Trombone on the assumption that the insurance policies were and would remain valid and enforceable.
(m)Andy B and Trombone have common director and shareholder, Andria Borazio. In its request to transfer its lease to Andy B, Trombone was willing to remain liable for the rental and other obligations of the assignee.
(n)By its proceedings and its issuing and/or reliance upon multiple s 146 notices, TBT has embarked upon an unfair and pressured campaign against Trombone for the purpose of bringing Trombone’s lease to an end and obtaining substantially higher market rental for the premises.
Trombone relied upon paragraphs (h) and (l) of the particulars as the basis for applying for the issue of the witness summonses.
The witness summonses which were the subject of the application before the Senior Member were directed at TBT, its director Ms Hannah Fong, and Mr Bill Romanovski, a building surveyor who had been engaged by the predecessor tenant, Sobel, sometime in 2008. Mr Romanovski appeared at the hearing of the application which gave rise to the orders which are the subject of the application before me, but has taken no part in this proceeding. I am satisfied that he has been given adequate notice of this hearing.
The witness summonses addressed to TBT and Ms Fong were in largely identical terms. The witness summons addressed to TBT sought the following classes of documents:
1.All correspondence (including letters, emails, faxes and notices) between TBT (Victoria) Pty Ltd, its servants, its agents or howsoever otherwise and the Melbourne City Council relating to planning permits, building permits and/or building works with respect to level 1, 12-18 Meyers Place, Melbourne during the period 1 April 2010 to 31 August 2010.
2.All correspondence (including letters, emails, faxes and notices) between TBT (Victoria) Pty Ltd, its servants, its agents or howsoever otherwise and Bill Romanovski or Checkpoint Building Surveyors relating to planning permits and/or building permits with respect to level 1, 12-18 Meyers Place, Melbourne during the period 1 September 2008 to 31 August 2010.
3.All correspondence (including letters, emails, faxes and notices) between TBT (Victoria) Pty Ltd, its servants, its agents or howsoever otherwise and Bill Romanovski or Checkpoint Building Surveyors relating to the amendments of the building permit dated 26 September 2008, which was issued by Bill Romanovski of Checkpoint Building Surveyors, with respect to level 1, 12-18 Meyers Place, Melbourne during the period 1 September 2008 to present.
4.The building permit dated 26 September 2008 which was issued by Bill Romanovski of Checkpoint Building Surveyors for level 1, 12-18 Meyers Place, Melbourne.
5.The letter dated 9 October 2008 from Douros Jackson Lawyers to Freehills Lawyers.
6.All documents recording the consent or authorisation by TBT (Victoria) Pty Ltd, its servants, its agents or howsoever otherwise, pursuant to section 70(1)(a) of the Building Act, or otherwise, for Bill Romanovski or Checkpoint Building Surveyors to amend the building permit dated 26 September 2008.
7.The amended plans and permits relating to the amendment of the building permit dated 26 September 2008 by Bill Romanovski or Checkpoint Building Surveyors.
8.The building insurance policy for 12-18 Meyers Place, Melbourne, including any application forms, certificate of currency and disclosure statements made to the insurer.
9.All documents recording any payments from, or on behalf of, TBT (Victoria) Pty Ltd to Bill Romanovski, Checkpoint Building Surveyors or anyone else on their behalf during the period 1 September 2008 to present.
10.All building permits and planning permits relating to 12-18 Meyers Place, Melbourne, which were issued in the period 1 September 2008 to present.
The classes of documents sought from Mr Romanovski were as follows:
1.All building permits and planning permits relating to 12-18 Meyers Place, Melbourne, which were issued in the period 1 September 2008 to present.
2.All documents (including, but not limited to, letters, emails, faxes, notices, plans, reports, memoranda, file notes, diary notes, invoices, receipts, client ledgers) concerning level 1, 12-18 Meyers Place, Melbourne that were created or produced during the period 1 September 2008 to present.
3.All documents recording any payments from, or on behalf of, Hannah Fong or TBT (Victoria) Pty Ltd to you, Checkpoint Building Surveyors or anyone else on your or its behalf during the period 1 September 2008 to present.
4.The email dated 5 December 2008 sent by you to Jerome Borazio.
5.All documents (including, but not limited to, letters, emails, faxes, notices, plans, reports, memoranda, file notes, diary notes, invoices, receipts) concerning your appeal of the decision of the Building Practitioners Board dated 20 December 2012.
Further details of Trombone’s allegations in paragraph (h) of the particulars to paragraph 15B of the Further Amended Points of Claim (‘building permit issue’) were provided in Mr Borazio’s affidavit sworn on 19 December 2014. At paragraphs 29 to 49 of his affidavit, Mr Borazio deposed, in summary, as follows:
(a) in February 2010 an issue arose between TBT and Sobel in relation to Mr Borazio’s occupation of the manager’s residence and the need, if any, for a building permit and certificate of occupancy;
(b) on 31 May 2010, Ms Fong sent Mr Borazio an email attaching a letter from the Melbourne City Council (‘MCC’) referring to Ms Fong’s previous correspondence and requesting access to the premises for an inspection;
(c) after inspecting the premises, the MCC issued a Building Notice on the basis that no valid building permit was in place for the works. Some days later, TBT served a s 146 Notice asserting that Sobel had breached the lease by performing works for which there was no building permit. The relevant works were being carried out to fit out the premises as a bathhouse;
(d) the works were carried out pursuant to a building permit approved by Mr Romanovski in September 2008 and lodged with the MCC. A copy of the permit had been sent to the solicitors for TBT;
(e) without Mr Borazio’s knowledge, under cover of a letter dated 28 April 2010, Mr Romanovski submitted an amended permit to the MCC providing only for the construction of a dividing wall;
(f) the amendment was accompanied by an application which purported to be a signature of Mr Borazio. Mr Borazio denied signing that document, and exhibited a report of a forensic handwriting expert which concluded that the signature on the second application was, in effect, a photocopy of the signature on the first application;
(g) Mr Romanovski did not invoice Sobel or Trombone for preparing and lodging the building permit amendment. When Mr Borazio challenged Mr Romanovski about the matters set out above, Mr Romanovski told him that Ms Fong had instructed him to amend the building permit;
(h) relying upon the s 146 Notice, TBT commenced a proceeding in VCAT. The proceeding, and the s 146 Notice was withdrawn on other grounds, and a further building permit was issued for the works in November 2010; and
(i) the building permit issue caused Sobel to suffer delay and incur costs.
Essentially, Trombone is alleging that TBT had engineered a breach of the lease by instructing Mr Romanovski to submit an unauthorised application to the MCC using a document which purported to have been signed by Mr Borazio, but which had not been signed by him. These are, of course, very serious allegations. Trombone asserts that the building permit issue was one of a number of occasions where TBT seized upon technical breaches of the lease in order to force Trombone or Sobel from the premises, and was of itself illustrative of TBT’s lack of good faith towards Trombone.
The documents sought by the witness summonses are documents which largely relate to the building permit issue.[2] TBT successfully applied to the Senior Member to quash the witness summonses on the basis that the categories of documents sought are not relevant to any legitimate issue in the proceeding. It is this finding which is the subject of the proposed notice of appeal.
[2]Paragraph 8 of the witness summonses addressed to TBT and Ms Fong seek documents relating to the building insurance policy for the building in which the premises are located, but this category was not referred to in argument at the hearing before me, and was not referred to in the Senior Member’s reasons.
The draft notice of appeal dated 13 February 2015 identifies the following questions of law and grounds of appeal:
QUESTIONS OF LAW:
1.Were the documents sought in each of the Summons of the Production of Documents dated 22 January 2015 referred to in the Orders relevant to any question in the VCAT proceeding?
2.If the documents sought were relevant, did the Senior Master err in quashing those Summonses?
GROUNDS OF APPEAL:
1.The learned Senior Member erred in determining that the documents sought in each of the Summonses were irrelevant to the issues in the VCAT proceeding for one or more of the following reasons:
(a)He failed to take into account that the Plaintiff and Sobel Investments Pty Ltd were both trustees of the same underlying trust.
(b)He failed to take into account that Jerome Borazio was the alter ego of each of the Plaintiff and Sobel Investments Pty Ltd – so that the conduct of the landlord in respect of Sobel Investments Pty Ltd was relevant to the question as to whether or not the First Defendant was acting unconscionably towards the Plaintiff.
2.The learned Senior Member erred in finding that the conduct of the landlord prior to the issue of the section 146 Notice was too remote or lacked sufficient nexus to its service of the section 146 Notice to affect its validity.
3.The learned Senior Member erred in finding that to impugn the validity of the section 146 Notice it was insufficient for the Plaintiff to establish that the landlord had engineered a campaign to oust the Plaintiff from the premises unless it could be shown that the landlord’s conduct in some way either directly or indirectly caused the Plaintiff’s breach of the lease.
4.The learned Senior Member erred in finding that to impugn the validity of the section 146 Notice it was insufficient for the Plaintiff to establish that the landlord had acted unconscionably if its conduct had no direct connection to the breach.
5.The learned Senior Member failed to take into account that the Plaintiff’s conduct was relevant to the discretion to grant relief against forfeiture.
Both parties agreed that VCAT’s power to quash a witness summons issued under s 104 of the VCAT Act may be exercised in the following circumstances:
(a) where the recipient of the summons to give evidence is unable to give relevant evidence;
(b) where the documents specified in the summons to produce documents are not relevant to any issue that may legitimately arise at the hearing;
(c) where the summons to produce documents is oppressive because it imposes an undue burden on the recipient of the summons;
(d) where the documents specified in the summons to produce documents are not sought for the purpose of the proceeding but for some ulterior purpose; and
(e) where the summons otherwise constitutes an abuse of process.[3]
[3]These matters are set out in Jason Pizer QC and Emrys Nekrapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 5th ed, 2015) at [104.140]. The commentary in that paragraph notes that in Vaughan v Department of Sustainability and Environment [2003] VCAT 1754, Judge Higgins VP stated that this summary ‘conveniently and correctly sets out the general principles with regard to setting aside a summons’, and the submissions before me on this application proceeded on that basis.
The only issue before the Senior Member, and in the current application, is whether the documents sought by the witness summonses are relevant to any issue which might legitimately arise at the hearing. The Senior Member determined that they were not, giving reasonably detailed reasons for that finding. In his reasons, the Senior Member:
(a) summarised the dispute and the procedural history of the proceeding, and the submissions of the parties;
(b) reproduced the relevant sections of the Further Amended Points of Claim;
(c) noted that the question of whether the building permit issue documents were relevant raised a threshold question, namely, whether at law, the s 146 Notice can be impugned and rendered void by reason only of a finding that TBT had acted unconscionably in a general sense in its dealings with Trombone up to that point;
(d) rejected TBT’s contention that conduct which predates the issuing of a s 146 notice cannot be relevant to the validity of that notice, commenting that there might be examples where a party’s conduct gives rise to an estoppel or where the actions of a landlord have caused or materially contributed to a tenant’s breach;
(e) noted that the allegations regarding TBT’s conduct with respect to the building permit issue do not directly touch upon the allegations of breach made by TBT in the s 146 Notice;
(f) rejected Trombone’s submission that because Trombone and Sobel share a common director, and were trustees for the same beneficiary, the conduct of TBT towards Sobel prior to the transfer of the lease from Sobel to Trombone can be taken into account in assessing TBT’s conduct towards Trombone, stating that if the connection between Trombone and Sobel was so interwoven, there would be no need to transfer the lease from one to another;
(g) concluded that the allegations of unconscionable conduct on the part of TBT are too remote. He stated:
In my view, the allegations of unconscionable conduct on the part of the Landlord are too remote to affect the validity of the s 146 notice. This is not a situation where the allegations of breach have any direct connection to the alleged unconscionable conduct, such that it could be said that it would be unconscionable for the Landlord to rely upon the s 146 notice. Even if it were proved that the Landlord had engineered a campaign to oust the Tenant, that alone would not deprive the Landlord of being able to rely upon its rights under the Lease upon there being a breach by the Tenant, unless it could be shown that the Landlord’s conduct in some way, either directly or indirectly, caused the breach.
I reject the submission that a finding of unconscionable conduct on the part of the Landlord, without any connection to the breach itself, invalidates or impugns the s 146 notice. More needs to be shown in order to establish the nexus between the unconscionable conduct and the breach. The substantial allegations set out in paragraph 15B and 15C of the Further Amended Points of Claim and the particulars subjoined to those paragraphs do not establish that nexus. In my view, the matters set forth in paragraph 15B of the Further Amended Points of Claim and the particulars subjoined to that paragraph are largely irrelevant to the legitimate issues for determination.[4]
[4]Trombone Investments Pty Ltd v TBT (Victoria) Pty Ltd (Building and Property) (2015) VCAT 289 [17]-[18].
(h) he noted that the relevance of the pleadings of unconscionable conduct was the subject of a strike out application on 6 June 2014, noting, that despite his misgivings at that time concerning the relevance of the pleadings, he allowed paragraph 15B to stand on the proviso that argument as to its relevance could be re‑agitated at the commencement of the hearing. However, the issue of the witness summonses necessitated the question being determined prior to trial;
(i) he did not regard events and conduct prior to the transfer of the lease from Sobel to Trombone as being relevant to the issues in dispute between Trombone and TBT. He stated:
As I have already indicated, I do not regard the matters which occurred prior to the assignment of the lease as being relevant to the issues in dispute as between the Landlord and the Tenant in this proceeding. In my view, a line must be drawn between what occurred during Sobel’s occupancy of the premises and what has occurred during the Tenant’s occupancy of the premises. By analogy, if the allegations concerning the building permit were the subject of a damages claim, that claim would need to be prosecuted by Sobel. The Tenant would have no standing because it is a separate legal entity.[5]
[5]Ibid [23].
(j) finally, he concluded:
I do not accept that in this particular case the conduct on the part of the Landlord, which may or may not constitute unconscionable conduct, is relevant in determining the validity of the s 146 notice or whether the Landlord should give consent to the transfer of the lease to Andy B Pty Ltd. As I have already commented, that conduct, insofar as it relates to the relationship between the Tenant and the Landlord, is far too remote for it to be arguable that there is a nexus between the conduct and the breach alleged in the s 146 notice. Accordingly, I am of the view that the validity of the s 146 notice must be determined by reference to the allegations of breach referred to in it. The allegations of unconscionable conduct, insofar as they relate to the relationship between the Tenant and the Landlord, may be relevant in a claim in damages. However, that is not what is being prosecuted by the Tenant in this proceeding.
Accordingly, I find that the subject-matter of the three summonses is irrelevant to any issue that may legitimately arise at the hearing of this proceeding. Therefore, I will order that those three summonses be set aside.[6]
[6]Ibid [27]-[28].
In its written submissions, Trombone submitted that the Senior Member erred in:
(a) determining that the documents sought in each of the Summonses were irrelevant to the issues in the VCAT proceeding for one or more of the following reasons:
(i) he failed to take into account the fact that Sobel and Trombone were both trustees of the same underlying trust; and
(ii) he failed to take into account that Jerome Borazio was the alter ego of each of Sobel and Trombone, so that the conduct of the TBT in respect of Sobel was relevant to the question as to whether or not TBT was acting unconscionably towards Trombone;
(b) finding that the conduct of TBT prior to the issue of the s 146 Notice was too remote, or lacked sufficient nexus to its service of the s 146 Notice to effect its validity;
(c) finding that to impugn the validity of the s 146 Notice it was insufficient for Trombone to establish that TBT had engineered a campaign to oust Trombone from the premises unless it could be shown that TBT’s conduct was, in some way either directly or indirectly related to Trombone’s alleged breach of the lease;
(d) in finding that to impugn the validity of the s 146 Notice, it was insufficient for Trombone to establish that TBT had acted unconscionably if its conduct had no direct connection with the breach; and
(e) in failing to take into account that Trombone’s conduct was relevant to the discretion to grant relief against forfeiture.
During the course of the hearing, senior counsel for Trombone submitted that the documents sought by the witness summonses satisfied the test of relevance, in that the documents are ‘reasonably likely to add, in the end, in some way or other, to the relevant evidence in the case.’[7] Essentially, senior counsel for Trombone submitted that the Senior Member adopted the wrong approach in setting aside the subpoena, in effect, prejudging all of the issues in the proceeding without full evidence and argument, and limiting Trombone to argument concerned and exclusively related to the facts and matters pertaining to the alleged breach of the s 146 Notice. Rather, he should have allowed the witness summonses to stand, on the basis that they sought documents arguably relevant to issues as pleaded in the case, subject to arguments about relevance and admissibility at trial. It was simply premature to determine these matters prior to trial.
[7]See National Employers’ Mutual General Insurance Association Ltd v Waind [1978] 1 NSWLR 372, and other authorities referred to in Williams at I42.01.135.
Senior counsel for Trombone also submitted that it was simply wrong for the Senior Member to ‘draw a line’ in the sand with respect to the conduct of TBT prior to the assignment of the lease by Sobel to Trombone. Sobel and Trombone have the same director, the same shareholder, and are trustees of the same trust, which is the real beneficiary of the lease.
Further, senior counsel submitted that the language of s 146(2) of the Property Law Act 1958 (Vic), which provides for relief against forfeiture, is very wide, and it was premature to determine that the conduct of TBT was not relevant to the discretion of a court or tribunal to give relief under that section. He referred to the decision of the House of Lords in Hyman v Rose[8] where it was stated that:
the discretion given by the section is very wide. The Court is to consider all of the circumstances and the conduct of the parties. Now it seems to me that when the Act is so express to provide a wide discretion, meaning, no doubt, to prevent one man forfeiting what in fair dealing belongs to someone else, by taking advantage of a breach from which he is not commensurately and irreparably damaged, it is not advisable to lay down any rigid rules for guiding that discretion.
[8][1912] AC 623, 635.
In response, TBT defended the Senior Member’s decision, relying upon the following propositions:
(a) the Further Amended Points of Claim raise only two issues:
(iii) the validity of the section 146 notice dated 3 February 2014 and the purported forfeiture consequent upon the notice;
(iv)the validity of the refusal to consent to the assignment;
(b) whether the section 146 notice is valid is determined as a matter of law on whether or not the notice complies with section 146(1) of the Property Law Act 1958;
(c) whether the purported forfeiture is valid is determined as a matter of law on whether or not a breach alleged in the notice is proved, the breach was not remedied and TBT effected a valid forfeiture at law;
(d) Trombone claims that in serving the section 146 notice and purportedly forfeiting the lease TBT has acted unconscionably;
(e) pursuant to section 146(1) of the Property Law Act 1958 TBT must serve a section 146 notice prior to a forfeiture;
(f) TBT cannot be forever barred from relying upon a breach of the lease and serving a section 146 notice and forfeiting the lease because of any (alleged) unconscionable conduct unless the unconscionable conduct is directly relevant to the breach, the service of the section 146 notice and the forfeiture;
(g) the alleged unconscionable conduct must be relevant to the breach, the service and validity of the section 146 notice and the purported forfeiture consequent upon the notice;
(h) the documents sought on the summonses (building permit documents in 2010 and insurance documents), even if founding past unconscionable conduct, are not relevant to the breach of the lease, the service of the section 146 notice and the forfeiture;
(i) the Senior Member was correct to determine that the documents are irrelevant to the claim of unconscionability in the Further Amended Points of Claim;
(j) Trombone’s claim to relief from forfeiture is confined to a claim that it has remedied the breach and therefore does not raise the issue of unconscionability as pleaded (which is confined to the notice and the forfeiture); and
(k) the documents sought are too remote from the discretion raised by section 146(2) of the Property Law Act 1958 (the relief from forfeiture provision).
These propositions summarised the key contentions in the written outline of submissions relied upon by TBT. Counsel for TBT also relied upon a table comparing the documents sought by Trombone, which showed that the documents sought by the witness summonses were largely the same as documents previously unsuccessfully sought by Trombone in a discovery application. However, I was not invited to make a finding that the witness summonses ought to have been set aside on the basis that their issue was an abuse of process, presumably at least in part owing to the amendment of Trombone’s pleadings over time, and also in part because one of the witness summonses was addressed to Mr Romanovsky, a non‑party.
In his oral submissions at the hearing, counsel for TBT emphasised that the factual allegations made by Mr Borazio, both with respect to the building permit issue and the conduct of TBT generally would be strongly contested at trial. He noted that while a number of allegations of fraud and conspiracy with respect to the building permit issue are made in Mr Borazio’s affidavit, there are no allegations of fraud and conspiracy in the Further Amended Points of Claim. He explained the context in which the Senior Member made the findings that he did regarding the relevance of the particulars under paragraph 15B of the Further Amended Points of Claim to the validity or otherwise of the service of the s 146 Notice. The application to set aside the witness summonses was heard not long before the scheduled commencement of the trial, which had been booked in for three days, and the Senior Member was no doubt keen to determine the real issues in dispute between the parties prior to the commencement of the pending trial. Finally, notwithstanding the extensive submissions made on behalf of Trombone regarding the potential relevance of TBT’s conduct to Trombone’s claim for relief against forfeiture, in the paragraph of the Further Amended Points of Claim where such relief is claimed, there is no reference to or reliance upon the matters pleaded in the particulars under paragraph 15B of the Further Amended Points of Claim.
In my view, the application for leave to appeal ought to be granted, and the appeal ought to be allowed. TBT did not oppose the grant of leave, or at least did not advance any submissions that TBT has not satisfied the threshold test established in Secretary to Department of Premier and Cabinet v Hulls,[9] being that the applicant has identified a question of law relevant to the granting of relief on appeal, that there is a real or significant argument to be put on that question of law, and that to allow the error to go uncorrected would cause substantial injustice.
[9][1999] 3 VR 331 [16].
I accept that leave ought to be granted, notwithstanding that the Senior Member’s decision was in relation to an interlocutory application, and as such the principles in Niemann v Electronic Industries Ltd[10] are applicable, namely that on an application for leave to appeal from an interlocutory order the applicant must show, not only sufficient doubt about the correctness of the order, but that there would be substantial injustice in leaving that order unreserved. In determining the application to set aside the witness summonses, the Senior Member in effect determined that the matters, or at least some of the matters pleaded as particulars of unconscionable conduct, are not relevant to the issues to be determined in the VCAT proceeding. The logical consequence of the Senior Member’s finding is that the trial of the proceeding would be limited to, at its widest, the conduct of TBT after the transfer of the lease from Sobel to Trombone, and, most likely, based upon the Senior Member’s reasons, the conduct of TBT which was directly connected to the breach alleged in the s 146 Notice, being the alleged giving up of possession by Trombone to Andy B, or the sharing of the premises with Andy B without TBT’s consent. As noted by counsel for TBT, the Senior Member was in effect determining a pleadings summons. His findings will in effect substantially circumscribe the manner in which Trombone will be able to put its case at trial. If the Senior Member is in error, there is a risk of serious injustice to Trombone, which holds a lease on what it concedes are extremely favourable commercial terms, from relying upon what it says is an ongoing course of unconscionable conduct on the part of TBT in resisting TBT’s forfeiture of the lease. The decision to set aside the witness summonses, or at least the reasoning behind the decision, will also no doubt affect the admissibility of evidence at trial.
[10][1978] VR 431.
I would also allow the appeal, on the basis that the Senior Member’s findings regarding the relevance of the documents sought by the subpoena to any issue which might legitimately arise in the proceeding arose out of an unduly restrictive approach to what facts and matters might be ventilated in support of Trombone’s claim for relief in the VCAT proceeding. It is correct to say, and Trombone seems to accept, that when determining whether to grant relief against forfeiture, the focus of a court or tribunal is largely directed at the conduct of the tenant.[11] However, it must be remembered that the remedy of relief against forfeiture has its origins in equity, and one must be careful to stifle developments in the law in that regard. Certainly the language of s 146(2) of the Property Law Act 1958, which provides that the Court may grant or refuse relief ‘as the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances thinks fit’ seems to be sufficiently wide to encompass an examination of the conduct of each of the parties.
[11]Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504 [163].
While I accept that it is more probable than not that Trombone’s claim for relief against forfeiture, to the extent that it seeks to rely upon TBT’s conduct unconnected with the breach specified in the s 146 Notice, might be unlikely to succeed on that basis alone, in my view, the position regarding the relief sought by Trombone with respect to its claims for unconscionable conduct within the meaning of the Retail Leases Act 2003 or under the Australian Consumer Law is far from clear cut. In Legione v Hateley,[12] where the High Court was considering a claim for specific performance by a purchase of land who had failed to settle the purchase by the due date, Mason and Deane JJ stated as follows:
In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser’s breach? (2) Was the purchaser’s breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser’s breach? (4) What is the magnitude of the purchaser’s loss and the vendor’s gain if the forfeiture is to stand? (5) Is the specific performance with or without compensation an adequate safeguard for the vendor?
[12](1983) 152 CLR 406, 449.
The above statement was relied upon by counsel for TBT as support for his contention that, because it could not be said that TBT’s conduct did not contribute to the breach relied upon in the s 146 Notice, Trombone was not entitled to relief in respect of its allegations of unconscionable conduct in the particulars to paragraph 15B of the Further Amended Points of Claim. However, I doubt that the above passage can be construed so as to confine a court or tribunal’s analysis to the five questions referred to in that passage. Those five questions are described as ‘the more important’ of the subsidiary questions which might arise. As such, the way is left open for other matters to be considered in the circumstances of a particular case.
Further, in Tanwar Enterprises v Cauchi (‘Tanwar’),[13] another case where a purchaser defaulted upon settlement where there was an express time stipulation in the relevant contract, the High Court stated that the vendors, in challenging the doctrinal basis of the five subsidiary questions referred to in Legione v Hateley as being determinative of the matter, were correct in doing so.[14] Later, the plurality approved the following statement by Deane and Dawson JJ in Stern v McArthur,[15] with reference to what had been said by Mason and Deane JJ in Legione v Hateley:
Mason and Deane JJ were not saying that there must be unconscionable conduct of an exceptional kind before a case for relief can be made out. Rather, what was being said was that a court will be reluctant to interfere with the contractual rights of the parties who have chosen to make time of the essence of the contract. The circumstances must be such as to make plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable – or more accurately, unconscientious conduct.
[13](2004) 217 CLR 315.
[14]Ibid, 330.
[15](1988) 165 CLR 489.
There are other observations of the High Court in Tanwar which would support Trombone’s contention that the landlord’s unconscientious conduct must have caused or contributed to the relevant breach. However, in the end, there is no precise formula to be applied in determining whether the party seeking relief can show that it is against conscience for the other party to rely upon their contractual rights. As Tanwar shows, absent any unconscientious conduct, a party in breach of a payment term where time is of the essence will find it difficult to obtain relief. Whether a tenant in breach of a non‑financial covenant of a lease would face similar difficulties remains to be seen.
Counsel for TBT also relied upon authorities that emphasised the association of the concept of unconscionability with a ‘high level of moral obloquy’.[16] That submission is accepted by senior counsel for Trombone, and I do not disagree, noting that this standard was accepted by Senior Member Vassie as the applicable standard in Transaero Pty Ltd v Goulthorpe[17] in determining what amounts to unconscionable conduct under s 77 of the Retail Lease Act 2003 (Vic). It may well be that a number of the allegations made by Trombone in the particulars to paragraph 15B of the Further Amended Points of Claim, if made out at trial, will not clear the relatively high hurdle raised by the authorities regarding what conduct amounts to sufficient wrongdoing to amount to unconscionable conduct. But I accept the submission made on behalf of Trombone that the hurdle might well be cleared if Trombone is able to prove its allegations that the director and controlling mind of TBT conspired with a building surveyor to concoct a document which had the effect of causing Sobel to be found to be carrying out works in breach of a building permit, then seeking to rely upon that breach in a s 146 notice, notwithstanding that notice was subsequently withdrawn. Whether that conduct could give rise to the relief sought by Trombone in the VCAT proceeding is, in my view, a matter for argument at trial, and Trombone is entitled to use what legitimate means are available to it to gather evidence to prove these allegations at trial.
[16]Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 [120].
[17][2009] VCAT 2146.
Counsel for TBT noted, correctly, that Trombone’s allegations regarding the building permit issue are not articulated in the particulars to paragraph 15B of the Further Amended Points of Claim. Ideally, given the seriousness of the allegations, they ought to be. But VCAT is not a court of pleadings,[18] and the allegations are raised squarely and in some detail in Mr Borazio’s affidavit of 19 December 2014. There can be little doubt that TBT knows the case it has to meet in that regard. That said, it seems to me that if Trombone wishes to rely upon the particulars under paragraph 15B of the Further Amended Points of Claim in support of its claim for relief against forfeiture, it should probably apply to amend its pleading to do so. But that argument is for another day.
[18]VCAT Act (Vic) s 98(1)(b).
In reaching my conclusion that the application be granted and the appeal allowed, I have had regard to the numerous authorities in this Court which support the adoption of a relatively liberal approach when it comes to determining whether documents sought by a subpoena are ‘relevant’. In HRF Nominees Pty Ltd (in liq) and ors v Man Civil Constructions Pty Ltd and ors (No 2),[19] Derham AsJ held that, when determining the question of relevance of documents sought by a subpoena under O42A:
the test of relevance may be a general one, particularly where the court has only a general idea of the nature of the evidence which may be led as relevant to an issue or as to the credit of an expected witness. The Court should not be unduly astute to reject the possibility that a document does not meet this test of relevance.
[19][2014] VSC 613 [23].
In dealing with the matter before him, his Honour adopted what he described as the ‘wide approach’ adopted by Nettle J (as he then was) in Skrijel v Mengler[20] and Bongiorno J (as he then was) in Atlas v DPP.[21] In Skrijel v Mengler, his Honour held that the relevant test to be applied in determining whether documents sought to be produced upon a subpoena ought to be produced, is whether, having regard to the issues defined in the pleadings, the documents are either directly relevant to the maters in issue or might come within the second limb of the test in the Peruvian Guano case, that is, they are documents that could lead a party upon a path of enquiry either to advance its own case or impeach the case made against it.
[20][2003] VSC 55.
[21](2001) 3 VR 2011.
In Atlas v DPP, Bongiorno J stated:[22]
In many instances the documents will not be ‘evidence’ as that word is properly understood. They may be no more than documents containing information which the party who issued the subpoena may have (or alleges he has) a legitimate forensic purpose in having produced.
[22]Ibid [43].
Of course, these authorities are concerned with subpoenas issued under O42 and O42A of the Rules, not witness summonses issued under s 104 of the VCAT Act. However, in my view, the permissive nature of the language in the phrase ‘may be relevant to any legitimate issue in the proceeding’ comfortably mirrors the liberal approach to relevance reflected in the authorities referred to above.
Indeed, the language of the term ‘may be relevant to any legitimate issue in the proceeding’ goes to the heart of the issues in this application. Ultimately, Trombone may be unable to establish the factual basis of the allegations made in the particulars under paragraph 15B of the Further Amended Points of Claim, or make good its contention that those facts enable the Tribunal to draw an inference that TBT is embarking upon a deliberate campaign to oust Trombone from the premises, or make good its contention that such conduct amounts to unconscionable conduct and impugns the validity of the s 146 Notice or entitles Trombone to relief from forfeiture. However, in my view, the statements made by the Senior Member in paragraphs 16 to 18 of his reasons, reflect, in my view, an overly restrictive approach to what might be unconscionable conduct on the part of a landlord, such that his conclusion that what documents might be relevant to an issue which may legitimately arise in the proceeding was infected by that unduly narrow approach. I accept the submissions advanced on behalf of TBT that it cannot be the case that any past unconscionable conduct of a landlord must invalidate any attempt by that landlord to enforce its rights to forfeit a lease. However, I am not satisfied that there must always be a direct connection between the alleged unconscionable conduct and the alleged breach, or that in the circumstances of the current proceeding TBT’s conduct towards Sobel cannot be relevant. That might usually be the case, but whether that must, as a matter of principle, always be the case is a proposition that should not, in my view, be determined on what is in effect a pleadings summons. It is a matter which would need to be evaluated in the context of all of the facts and circumstances of the case.
I should emphasise that in granting the application for leave and allowing the appeal I am not prejudging the question of whether the documents sought by the witness summonses are admissible at trial, or that any witness summons which seeks documents relevant to one of the particulars under paragraph 15B of the Further Amended Statement of Claim ought not be set aside.
Further, while the issue was not fully argued before me (although reference was made to those documents in Trombone’s written submissions in reply), I find it hard to see how the allegations made at particular (l) of the particulars under paragraph 15B of the Further Amended Points of Claim regarding TBT’s alleged failure to ensure other tenants of the building install appropriate mechanical ventilation systems could possibly amount to unconscionable conduct, given the high level of moral obloquy required by the authorities, and as such, I do not consider that the documents may be relevant to any legitimate issue in the proceeding. I am also not satisfied that the conduct described in this particulars could support Trombone’s claim for relief against forfeiture.
I will accordingly grant leave to appeal, allow the appeal, and hear further from counsel on the appropriate form of orders and the question of costs.
---
0
2
0